📊The statement of cash flows provides details about cash flow that are essential for the success of every business.
💰A healthy cash flow is crucial for the success of every business.
💼The statement of cash flows reconciles net income with the change in cash balance.
💸Cash flows from financing activities include cash inflows and outflows from external investments.
🏢Cash flows from investing activities include cash inflows and outflows from internal investments.
Why is the statement of cash flows important?
—The statement of cash flows provides crucial information about cash flow that is not included in other financial statements. It helps businesses understand their cash position and make informed financial decisions.
What is the purpose of the statement of cash flows?
—The purpose of the statement of cash flows is to reconcile net income with the change in cash balance and provide a comprehensive view of the company's cash flow from operating, investing, and financing activities.
How are cash flows from financing activities different from cash flows from investing activities?
—Cash flows from financing activities include cash inflows and outflows from external investments, such as shareholders buying or selling shares. Cash flows from investing activities include cash inflows and outflows from internal investments, such as the company buying or selling assets.
What is the difference between direct and indirect methods of preparing the statement of cash flows?
—The key difference between the direct and indirect methods is how the operating activities section is compiled. The direct method involves accounting for cash receipts and disbursements, while the indirect method starts with net income and adjusts for non-cash items.
Is the statement of cash flows prepared the same way for all businesses?
—The financing activities and investing activities portions of the statement of cash flows are prepared the same way for all businesses. The difference lies in how the operating activities portion is prepared, which can be done through the direct or indirect method.
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00:09The income statement and balance sheet follow the accrual basis of accounting, but cash is still important for business success.
00:23The statement of cash flows provides details about cash flow that are not included in other financial statements.
01:14The statement of cash flows reconciles net income with the change in cash balance.
01:44Cash flows from financing activities include cash inflows and outflows from external investments.
02:49Cash flows from investing activities include cash inflows and outflows from internal investments.
03:53There are two methods of preparing the statement of cash flows: direct and indirect.
04:20The indirect method is the most widely used method, starting with net income and adjusting for non-cash items.
